Mack-Cali Realty Corp

F:WY4

Earnings Call Transcript 2020-Q1

[Operator]

Good morning. My name is Henry, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2020 First Quarter Mack-Cali Realty Corporation Earnings Conference call. [Operator Instructions]

Now I would like to turn the call over to our presenter, Mr. Michael DeMarco, CEO of Mack-Cali Realty Corporation. Sir, you may begin the conference.

[Michael DeMarco, executive]

Thank you, operator. Good morning, everyone, and thank you for joining the Mack-Cali First Quarter 2020 Earnings Call. This is Mike DeMarco, CEO of Mack-Cali. I'm joined today by my partners, Marshall Tycher, Chairman of Roseland, our multifamily operation; David Smetana, our CFO; and Nick Hilton, EVP of Leasing.

On a legal note, I must remind everyone that certain information discussed in this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to our press release, annual and quarterly reports filed with the SEC for risk factors that could impact the company. We have filed our supplemental this quarter. As always, please contact David with any further suggestions as information you'd like to see.

As we've done before, we're going to break down the call into the following sections: my opening comments; I'll turn it over to my partner, Marshall, who will discuss multifamily; we'll turn it over to Nick to discuss office; David will then wrap up and do operating results; and I will end with some additional comments before we take questions.

I'd like to add my voice to all my colleagues, CEOs and others and peers who've commented before on their calls regarding the last 7 weeks, which has been the most difficult for everyone in my experience in the past 60 years. Everyone we know and care for has really been affected, literally everyone. We take our responsibilities very seriously regarding shareholder returns. However, in these times, our chief focus has been and will be the concerns regarding the health and welfare of our employees, residents, office tenants and in our communities we operate in.

Regarding that, we have contributed to and helped raise $2 million for the Jersey City small business relief fund headed by the Mayor of Jersey City. We also contributed to the Jersey City Medical Center Foundation. And as people have noticed, we provided rooms and food for emergency room doctors and nurses who have worked tirelessly these last several months. We're also contributing early in the year to key arts and not-for-profits who are struggling in this environment.

Let's talk about what's going on in the environment and what it's like today to operate our platform. As we pre-released, residential is solid to date. Collection this month was stronger than they were last month at the same time. Just to be clear about how we work in our portfolio, we collect rent for the residential tenants by the 5th of the month, except for Massachusetts, which has a significant number of assets, which allows tenants to pay throughout the months without penalty. So those rents dribble in between the 5th through the 30th. As my partner, Marshall, will outline, our now payment is almost entirely our corporate housing tenants whose business is essentially a long-term hotel. We are in a process of re-renting these units as that business is likely not to be recovering in this environment.

Renewal rates are up for the month of April. We expect it'll be up more significantly in the month of May. We see our tenants focusing on basically staying in place, looking at value, making decision based on things they know and not likely to move in this environment. We are focused on attracting new tenants to fill in the spaces that we need to relet, and we're offering discounts with specialists to attempt to do that.

We're offering only virtual and self-guided tours. We hope over the next several weeks, the tours, both virtual and self-guided, will increase as the stay-at-home orders are relaxed in our communities. As Marshall will go over, we're operating and continue to develop our buildings under the orders of the Governor of Massachusetts and New Jersey. In particular, we have delivered and continue to deliver units in Malden and Revere. Marshall will discuss how well these units are leasing up, which we've been very happy with so far.

Regarding office, April was and we believe May will be strong for collections. We have a strong credit portfolio of the void. Luckily, the WeWorks and other private equity-based start-ups, sometimes not being the trendy area, is good for you. Our delinquencies are less than 5%. We expect them to be payment plans and not write-offs.

COVID affected us in 3 places the most, which I'd like to dwell on: retail, which is less than 2% of our revenue; hotels, which are less than 4%; and parking, which is approximately 4% or more; in total, about 10%. In retail, we have bank branches and fast food restaurants and takeouts that are doing well in this environment. We suffer today in retail in gyms, daycare and sit-down restaurants. We expect daycare to rebound quickly. We have no traditional retail in our portfolio regarding apparel. There's no tenants that won't be affected long term by the web or the Amazons of the world.

Parking is a real business for us. We operate over 7,000 spaces in both structured and surface lots. It was hurt by the stay-at-home orders. We expect more people post stay-at-home will be driving into work over the next several weeks and months. We -- lastly, we have 3 hotels that were affected, 2 we closed, which is the EnVue, which is the brand-new Marriott in Port Imperial; and our joint venture with Hyatt in Jersey City; the third, a brand-new Residence Inn we kept open as a trial basis to see what would happen. We're running at a high 50s, 58% over the last 4 weeks but at a reduced ADR, so it's profitable, but marginally. We also expect that hotels will recover slowly over the next several months.

We ran a tight ship on an everyday basis. We have been restructuring our staff every quarter and reduced by 10% in the first quarter planned reductions. Therefore, we are not planning today to do any staff reductions, but we are monitoring on a week-by-week basis.

And with that, I'd like to turn it over to my partner, Marshall, to discuss multifamily.

[Marshall Tycher, executive]

Thanks, Mike. In the first quarter, Roseland's percentage lease was 95.7% as compared to 95% last quarter. Our 4,838-unit same-store portfolio experienced a 9.8% quarterly increase in NOI, generated predominantly by a 5.6% increase in revenues. The largest contributors to revenue growth were RiverHouse 11 in Port Imperial and Signature Place in Morris Plains.

Since the onset of COVID, residential collections have exceeded 96% for the month of April, with the bulk of shortfall comprised of corporate tenancy, which we were addressing with each provider. Operationally, we continue to deliver a high level of service to our residents. Our staff is on-site and responsive. We have increased the quality and quantity of daily cleanings across the portfolio. And we have enhanced our residents' lifestyle by scheduling virtual programming, implementing door-to-door deliveries, introducing additional dining options.

April saw a drop in new leasing traffic as compared to 2019. It has been offset, however, by an increased retention rate to 63% of tenants seeking extensions or longer-term leases in lieu of previous notices to vacate. Going forward, we are targeting longer-term residential leases, refocusing on distinct targeting prospective renters and reducing the contribution of corporate tenancy in the portfolio, a process we began after the passage last fall of Jersey City's anti-Airbnb legislation.

Though we've temporarily ceased unit renovations at Monaco and Marbella, we have continued and are near completion of our common area improvements in Monaco and prepare to launch Marbella's renovation once the restrictions are lifted. These improvements represent a complete repositioning that is modernizing the units, common areas and amenities. Initial tenant feedback has been positive, as reflected by re-leased units achieving 18% rent premiums. This month, we will formally launch a complete rebranding of M2 at Marbella and Monaco in Jersey City as The BLVD Collection.

In regard to hotel properties, as Mike said before, the EnVue is closed at the end of March, however, the Residence Inn continues to operate. For the month of April, the Residence Inn achieved an average occupancy of 58%. In addition, Mack-Cali provided 42 rooms, including meals and parking, to frontline medical personnel from the Jersey City and Palisades Medical Centers.

As detailed in the supplemental, Roseland's current NAV is estimated at $2.24 billion, which after netting out Rockpoint participation is $1.79 billion or $18 per Mack-Cali share. The transactions frequently discussed over the last 4 years and consistent with the company's overall transformation are reflected in the composition of the NAV. 76% is along the Hudson Waterfront, 81% is in operating or in-construction assets and less than 1% in subordinated interest. The company's 5 projects, representing 1,942 units in construction, are projected to generate $62 million of stabilized NOI or development yield of 6.15%. Moreover, we only have $31 million in capital obligations remaining to complete this portfolio. We delivered initial units at The Emery in Massachusetts in late January and, to date, have leased 74 apartments representing 52% of the completed units at rents in excess of our initial pro forma. The balance of the units will be completed over the next 5 months.

Residential has 3 projects with scheduled delivery within the next 12 months, including 673 units in Port Imperial at both Riverwalk and RiverHouse 9, where our last delivery, RiverHouse 11, is 95% leased; and The Upton at Short Hills, a 193-unit luxury community in one of New Jersey's premier municipalities adjacent to the Short Hills Mall. Our fifth project, The Charlotte, is scheduled for delivery in the first quarter of 2022. This signature development is a 750-unit tower located in Jersey City's submarket on Christopher Columbus Drive, which will benefit from an on-site elementary school and a below-market pilot rate fixed at 7% for 20 years.

As a result of COVID and ensuing on-site safety protocols and government restrictions, construction has continued, but the space has been modestly curtailed and varies at each site, servicing local building officials' enforcement guidelines and each building's construction status.

Looking ahead, we are continuing pre-development activities on 3 potential Hudson River home water starts in the next 12 months, including Harborside 8, a 679-unit, highly amenitized tower adjacent to our corporate headquarters at Harborside 3; the second phase of Urby, a proposed 796-unit tower adjacent to our successful Urby project with the highest rents per square foot in Jersey City; and the Park Parcel at Port Imperial, a 302-unit development with unencumbered 270-degree views of Manhattan.

With that, I'll now turn the call over to David.

[David Smetana, executive]

Thanks, Marshall. I'll first detail our Q1 results, which were quite strong, and provide some context for those results in terms of our original expectations. I will then go through each of the building blocks of our financial results for the remainder of the year so that all of our stakeholders have an idea of the major areas in our operations that have exposure to disruptions caused by the pandemic.

The quarter came in better than expected in our office and multifamily segments, which accounted for 60% and 33% of our revenues in the quarter, respectively; while our exposure to hotel operations at 4% of revenues and parking operations, which are 3% of revenues, were disrupted. Our hotels and transient parking were negatively impacted in the quarter by $2.1 million or $0.02 per share versus our base case projections in our original guidance.

We reported core FFO per share for the quarter of $0.33 versus $0.40 in the prior year. The year-over-year decrease is mainly attributable to our disposition program. Not counting the negative effects of our hotel and parking revenues, we're ahead of our original expectations by $0.01 per share in the first quarter.

Office cash same-store NOI increased by 13.1% in the first quarter as we continue to receive the benefit of all of our major blend-and-extend leases at Harborside, now cash flowing over prior periods but still had free rent provisions. We had expected this growth to moderate from the second quarter on as we begin to anniversary these cash commencements. While our initial same-store guidance included only our Waterfront properties and continuing operations, I will note that the total portfolio in the first quarter, including discontinued operations, had same-store NOI growth of 11.9% and revenue growth of 4.6% and expense savings driven mainly from utilities being lower due to a mild winter.

Residential same-store NOI, as Marshall mentioned, was plus 9.8% for the quarter and above our expectations. We had expense savings of 1.4%, and the burn-up of concessions in the under-market leases from new developments benefited the number in the quarter. As Marshall pointed out, retention rates have increased, which have had the effect of slowing some of our renovations at Monaco and Marbella in Jersey City, which will lessen the drag on our revenues versus our original forecast, which had more units offline for renovations.

Now given the COVID-19-related disruptions to the economy and our operations, I wanted to bracket each of our main product lines and highlight ranges of potential impacts, both negative and positive, to the original guidance we gave. In the office segment, we originally gave guidance that included 135,000 square feet of Waterfront leasing for the year. To date, we have signed 51,000 square feet of transactions on the Waterfront with another 11,000 square feet in leases today. We currently have another 77,000 square feet of leases in proposal, and that would be versus the balance of 74,000 square feet remaining in our original 135,000 square foot targeted signings to be completed this year.

In our disposition portfolio in the suburbs, there are 283,000 square feet of expirations remaining for 2020. 112,000 square feet of these are in our Parsippany/Giralda portfolio or other assets which are under contract for sale. The remaining 171,000 square feet of expirations are almost entirely in our suburban portfolios of Metropark, Short Hills and Monmouth. Within the 171,000 square feet of expirations, we have 56,000 square feet of known move-outs occurring evenly throughout the balance of the year. Of the 115,000 square feet of move-outs remaining to address, we have renewal leases out for 108,000 square feet of these, including a tenant renewal for our largest 2020 expiration in Metropark for 62,000 square feet.

Now for multifamily. The operations, as Marshall had noted, have been a standout in many ways. Same-store NOI was running at the top end of expectations, and we had expected these results to moderate in the second half, mostly due to tougher comparisons before factoring in any COVID-19-related responses. We only have one new development project, The Emery in Malden, Massachusetts coming online in '20 that was projected to add to earnings. The first phase of The Emery opened in the quarter, and we had only budgeted $1.2 million or $0.01 per share of NOI in the third and fourth quarters of this year, which now may be delayed depending on new construction timing.

We are also evaluating the ongoing operations of 3 corporate and short-term housing providers in the portfolio who have been impacted by statewide shelter-in-place orders. We will have more on this one when we report in the second quarter. In total, the receivable balances are approximately $210,000, and we have not reserved yet against these balances at this time.

Our hotel operations consist of a dual-flagged EnVue and Residence Inn asset in Port Imperial with 372 rooms in total in our 50-50 Hyatt Regency joint venture in Jersey City. We currently only have the Residence Inn portion of the Port Imperial hotel in operation. The Port Imperial hotel contributed a minus $687,000 EBITDA loss in the first quarter. The Hyatt, a JV asset, contributed approximately $0 of JV FFO in the first quarter. We estimate that the Port Imperial and Hyatt assets combined at share may lose $500,000 each month in the second quarter if operations remain closed. Our original guidance midpoint for 2020 called for nearly $8.6 million of EBITDA for the year from the Port Imperial assets, both flags, and $4.8 million of JV FFO for the Hyatt or $0.13 per share in total of FFO.

Our parking operations produced $21.4 million of revenue in 2019. We expected a similar amount in 2020 despite the closing of one of our lots for predevelopment in Jersey City as other Port Imperial transit parking has been increasing as that neighborhood matures. We estimate approximately 50% of this revenue or about $10 million in 2020 will be from transient operations, both monthly and daily customers. Approximately $2.5 million of transient revenue was booked in the first quarter. The parking activity is managed by a third party and recorded on a 1-month lag basis so that the clients recorded in the first quarter were relatively modest and are expected to increase in April and into the second quarter.

Now to the transaction side. We disposed of 2 land parcels during the quarter totaling $17.3 million in our One GW Bridge office building in Fort Lee, New Jersey for $36 million or $184 per square foot at a 6.2% cap rate. This asset was previously grouped in the class A suburban section of our NAV schedule. That section now only includes our Short Hills portfolio and our Metropark portfolio. The sale was negotiated and put under contract in the fourth quarter of 2019. All proceeds from first quarter transactions were used to retire corporate debt. At the end of April, our 111 River asset in Hoboken, New Jersey was placed under contract with an institutional buyer for $245 million or $432 per square foot. The asset carries $150 million mortgage that will be assumed in the sale.

Last night, we also announced that the closing of our Parsippany and Giralda portfolios have been restructured with the original purchaser to close in 2 phases. The first phase is now scheduled to occur in mid-June for $200 million and include 12 of the original 15 properties. The second phase, for $85 million, will be for 3 of the remaining 15 properties, and those closings are now scheduled to take place in the fourth quarter. For the Monmouth, Short Hills and Metropark portfolios, we believe these portfolios will take at least 1 additional quarter to close from original expectations due to the pandemic disruptions.

We also highlighted that we are in various stages of LOI-ing contracts and 5 assets totaling 784,000 square feet, mainly located in our Princeton market. We see these closings happening at various times from late Q3 into Q4. Using in-place NOI on our NAV chart on Page 7 of the supplement, there's an approximate 550 basis point spread from the NOI cap rate to our debt cost. Delays in sales will positively affect the original FFO guidance by this spread applied to sales amounts.

Turning to the balance sheet. We have no corporate or property level debt maturities in 2020. And in 2021, outside of our corporate credit line, only one major property level maturity is left to deal with $165 million multifamily loan held by a life insurance company on our Monaco asset in Jersey City. We have already begun talks to refinance that asset.

Our $600 million line of credit had a $277 million balance at quarter end. It matures in January of '21 with up to 1 year of extensions available. As proceeds from the suburban office asset sales are received, we will use the proceeds to retire our line of credit first and then approach our bond maturities.

The net debt-to-EBITDA metric was 11.5x at quarter end. The metric was negatively affected and increased by 1.2 turns alone from Q4's 9.7x due to the Urby tax credit timing and the seasonal and pandemic-related hotel operations disruptions that I've just detailed.

Briefly touching on our development funding. We only have $31 million of equity left to fund in our development pipeline as of March 31, all relating to our 750-unit project called The Charlotte in Jersey City. We will then begin the construction loan portion on all 5 development projects totaling $1 billion in construction costs.

So in conclusion, the pivot we made to multifamily was fortuitous given the resiliency of the asset class. Our Waterfront rollover is very light this year with only 38,000 square feet of move-outs remaining and weighted towards the third and fourth quarters. And by marketing our entire suburban office portfolio in the summer of 2019, we're not starting from a standstill in the sales process and are dealing with many buyer groups who are very familiar with the assets but need time for the capital markets to heal. The longer we hold the suburban office assets, the better our intermediate term cash flows. And by dealing with our toughest assets first, the remaining assets we hold are our best ones.

With that, I'll turn it over to Nick.

[Nicholas Hilton, executive]

Thank you, Dave. We posted a solid first quarter in 2020, signing just over 173,000 square feet of transactions, resulting in our core Waterfront portfolio finishing at 81.1% leased at quarter end. Of these transactions, approximately 24% or 41,000 square feet were new leases and 76% or 132,000 square feet were in-place renewals. Across all core markets, our rents on Q1 deals rolled up 4.6% on a cash basis and 19.7% on a GAAP basis, and we committed $5.18 per square foot per year of lease term.

As we turn our focus to the specific markets, the Waterfront closed just over 51,000 square feet of transactions, finishing the first quarter at 78.5% leased, and we continue to see a positive rent push with increases of 17.9% on a cash basis and 26.2% on a GAAP basis. While the pandemic has paused many of our discussions, we still have approximately 90,000 square feet of transactions currently in negotiation across a diverse tenancy mix, including technology, financial services and insurance.

Looking ahead to the rest of the year, we have a limited amount of lease roll with only 38,000 square feet expiring on the Waterfront in 2020. We expect 24,000 square feet or 65,000 square feet to vacate, and we expect to renew the balance.

Our suburban portfolio also posted a strong first quarter. Specifically, we executed over 122,000 square feet of transactions, achieving a positive rent push with increases of 3.5% on a cash basis and 19.5% on a GAAP basis. For the remainder of the year, we have over 283,000 square feet expiring in our suburban portfolios, of which over 112,000 square feet pertain to the Parsippany and Giralda assets, which are expected to be sold this year. Of the 171,000 square feet remaining in our suburban portfolios, we know that 56,000 square feet or 33% will vacate. We are confident in addressing the balance of this rollover as we are already in active negotiations with over 115,000 square feet of transactions across that portfolio.

Finally, I'd be remiss if I didn't acknowledge and thank the hard work our property management, staff and security personnel are doing during this challenging time and their efforts to get our 10 million square foot portfolio ready for reentry. For the past 6 weeks, our whole team has spent hours researching and planning on how to implement protocols to facilitate the health and safety of our tenants as they make plans to reenter their office environments through an array of product types.

The reentry plan will concentrate on the employee experience. We want to focus on the entry-, mid- and executive-level employee and how their day goes, how they arrive and by what means, touch points from the elevator buttons to bathroom doors and fixtures, elevator queuing, where you stand, how many can safely distance inside the cab, food and beverage accessibility for carryout and catered lunches, places to relax that are clean and provide ample room for proper social distancing both indoors and outside as the weather continues to improve. Simply put, and where we can provide, the easier the reentry process will be for our tenants.

As it relates to our business today, we have been in active communication with our tenants and tenants in the market as the situation in hand evolves each day. As we disclosed on April 23, we collected 90% of April charges from our office tenants, and we are working with those businesses that have been severely impacted by the virus and/or government regulations to make sure we can all get through the situation on the right path to succeed. From a new business perspective, we understandably expect physical activity to be muted in the immediate future. Therefore, we have adapted quickly and are implementing virtual tour capabilities throughout our entire portfolio. These tours are focusing on our best spaces, which require little to no construction and provide quick solutions for tenants that are reassessing their immediate real estate needs.

Moving forward, I believe overall activity will fall into 3 categories: immediate, medium-term and long-term solutions. In the immediate, we see anyone with a lease event today looking for shorter-term renewals to push out the decisions necessary for space construction and density studies for about 1 to 3 years. In the medium term, I believe tenants will look to decentralize their footprints as a means to reduce overall density, which could benefit surrounding markets with good access to multiple transit modes. I might add mass transit in these areas will be recreated, not eliminated, thinking of air travel pre and post 9/11. And in the long term, as new buildout standards are created and shared ingress and egress plans are altered, we will go on to see a push for employee-centric real estate decisions that focus on amenity availability and live-work-play convenience. For these reasons, I see our portfolio having a good footing for both the immediate, medium and long term.

With that, I'd like to turn the call back over to Mike.

[Michael DeMarco, executive]

Thanks, Nick. As my partners have outlined, I think we have the makings of a year that we have to do a lot of work, but we can make progress on our objectives and continue to improve our portfolio along every single element. As I said earlier, I think some things are strong today. I think residential has held up very well. I think our core office business is doing well. Obviously, we have to do more leasing. For the areas of parking, I think we'll rebound relatively quickly as with retail. Our real weakness is the hotel segment, which is unknown today how that will react in the upcoming months. We do have some brand-new product, which bodes well for us.

We do know that there are a lot of things to do, and it's going to be a changing environment for us. We're very reactive as a company. I think as David pointed out, we had the support site to basically have most of our assets up and running to be sold, which is a big key advantage against your competitors who are still trying to deal from stay-at-home locations and trying to put portfolios out.

With that, I'd like to take any questions that anyone may have. Operator, I'll take the first question.

[Operator]

[Operator Instructions] Presenters, no questions so far. Please continue.

[Michael DeMarco, executive]

Operator, are you sure the Q&A is working? Because normally we have questions. Okay. With that, I thank everyone for joining us this morning. If for some reason the Q&A is not working, please contact David and myself for any questions you may have, and we'll publish -- I apologize, the Q&A has come up on the list now.

Operator, we'll take the first question. I think it's a Manny question.

[Operator]

Yes. You're line is now open now.

[Emmanuel Korchman, analyst]

Can you hear me, Mike?

[Michael DeMarco, executive]

Yes, I hear you, Manny. I can hear you, Manny.

[Emmanuel Korchman, analyst]

Mike, so I guess what caught us a little bit by surprise is, a, the fact that your sales are continuing; and b, that you've been able to set a time line to get sort of those sales across the goal line. I appreciate the comments that you guys were out in the market earlier, but how are those conversations with buyers has been going? Has there been any conversation on changes in pricing? And how are they getting comfortable with closing on the time lines they're closing on when it feels like the entire world is on pause?

[Michael DeMarco, executive]

The interesting, Manny, was this recession versus the one that we experienced post the Great Recession in 2006 and '07, the government reacted a lot quicker. I mean they had a playbook they could work with. I think the secondary treasury was a more astute student of the capital markets. So they pumped money into PATH and other programs. So you look at the treasury market, the asset-backed market, even CMBS, they're trading what I'd call more regular-wise, right? So people are now trying to figure out what price you should do to deal at, not whether or not you can actually do it.

Rates have actually dropped, obviously, precipitously low. So a lot of our buyers are looking at this and saying, wow, I can lock up relatively stable cash flows and advantageously finance. We do buying group, it happens to be mostly individuals or groups of people that put together syndicates. The deal that we have in Hoboken, in particular, is one where we're selling to a competitor of ours or as a Japanese fund -- big bank that basically is financing equity source for him. They're really waiting for the market to make sure that there's no second balance, and then they'll close on that transaction, which we felt was an opportunity to price.

The deal that we had with Onyx, that was the big deal in Parsippany, got recut, got delayed a little bit. As the financing first initially fell out, and now they're very close to re-completing their syndicate. It's not easy, but we're a group that's done it. And I would point out that if you haven't done it in the last few years and you start to do it now, it's a learning curve. We're already at the end of the curve. My team is good at putting things together. The books were already prepared. The material was already arranged, and we can go and move on any asset on anything we have in a moment's notice. It's a benefit for us. If you're starting today, it would take you several months to catch up to where we are.

[Emmanuel Korchman, analyst]

Just turning to the suburbs. There's certainly been press about newfound demand for the suburbs, say, de-urbanization, satellite offices. Do you think that, that truly drives demand to sort of the suburban assets that you guys currently own or trying to sell? And does that change any of your desire to sell those rather than just be on the Waterfront?

[Michael DeMarco, executive]

We're going to sell them because we made a business decision to sell them. Whether they'll be more valuable when we sell them or not is yet to be determined in the next few months. But Manny, let's look at what the trends are going to be. If you needed to restack your office location in Manhattan, the way to do it, as you do it in any -- in a residential business, is you have to actually move out in order to restack, right, because we're talking about changing density or maybe changing the platform from benching to a more -- a less-densified environment. You're going to need swing space.

So one of the things that happened, just anecdotally, in our market is Citibank, who has about 300,000 square feet of subleased space on the market in Jersey City, pulled all of it last month. 300,000 is a lot of square footage to pull. When we asked the inquiry, they said, look, we may need this. It's space we already own. It's furnished to a standard. And if we really need to restack, we're going to base a used Jersey City as a place to do it. We think that Jersey City should do well in a downturn, right, because it's price advantaged. It's got the type of available space today, you can do it.

As you know, AIG is likely to, but not yet confirmed, to move most of their operations from New York City to the Goldman Sachs building in our market, which is a couple of hundred thousand square feet. Our understanding is this a drug spin-off that's going to do a WeWork's deal in that same space of about 120,000 square feet. Both bode well for this market. We had a 50,000 square foot deal that was going to be done to a gaming company that's on hold, that we think they'll come back. Actually, it was more like 70,000. It was started at 50,000 and it went to 70,000.

But getting to your initial point, if you're looking at where people are today, and if I was a senior executive and I had the ability to move my operation, and I live in a Short Hills and Summit marketplace, do you really want to commute in? Do you really want to take mass transit? Do you want to drive? If you convince your boss, hey, we need to restack anyway. Should I take 30,000, 40,000, 70,000 square feet, go to JFK Parkway, go to Florham Park, go to Morristown, Metropark which has excellent commutation and even leave at a train. Or if you live in the southern part of the state and you're commuting up and it was the boat and so on and so forth, and you're an executive and you say, you know what, I want to move my operation, 50,000 square feet to Red Bank.

These are decisions, these are conversations that I think will happen, will be real, and I expect they will actually occur. They're going to be not an exit for New York, but I think there'll be a restacking as people come in and say to themselves, what's my footprint? Where do I want to be? So on and so forth. It's a logical conversation. We have to have some of the best localities in the state as we sold the worst buildings first and kept the best for last. We've put together a list of all the space available and gone to brokers and say, if you want an easy execution, something that's prebuilt, so relatively good finish, Manny, that we can raise the upgrade to your standard in, say, 3 to 6 months, we've put together a list of those buildings that we're circulating into the brokerage right now.

[Emmanuel Korchman, analyst]

And I'm going to sneak in one more, assuming maybe you have no other questions.

[Michael DeMarco, executive]

Go ahead. Go ahead. We'll have a few, Manny. We're in a good mood today. Go ahead. Shoot it in.

[Emmanuel Korchman, analyst]

Can you just give us an update what's going on with sort of the proxy fight, if you will?

[Michael DeMarco, executive]

A long question, long answer. So as everyone may or may not know, last year, we had -- Bow Street ran a dissident slate, 4 directors. They were recommended by Glass Lewis for 2 and ISS for 3, and all 4 were elected. We welcome that slate on to the Board. All 4 serve in the Audit Committee, which is our hardest-working committee, gives you the best insight into the workings of the company. Two of them are on the Shareholder Value Committee. One of them serves currently on the Strategic Committee, which entertain to the offers that we have regarding global transactions.

In September -- sorry, in January, we sent out a mail to the 10 of us. Bill Mack wasn't included because he's retiring and asked very simply, do you want to serve? It's a personal decision. You have the time, the effort, something in your life that's happening, do you want to be on the Board next year? All 10 of us replied yes. We thought it was a done subject. Unbeknownst to us, there were conversations going on with Bow Street and the 4 dissident directors who we thought were now independent directors. But obviously, if things have changed, Bow Street came back to us and said, we want control. We want what we always wanted, which is the ability to sell the company on terms that we dictate. We'd like to get control. We want Mike out because we think he's an impediment. Someday, they can have my job, Manny, by the way. And they basically said, we want control. We deferred, said, look, we'd give you back the 4. Maybe you want 3, we could do other things, so on and so forth. They came back and said no, and then all 8 of them were put on the slate. It was a surprise to us, right? There was no communication. There was no e-mail. There's no conversation about any disagreement between us and the 4 directors that we had worked with during the course of the year. Now we have a slate of 8.

What do we do? We had already interviewed Ferguson to basically -- for Bill Mack's position. We also had done Ferguson to ask to get backups for Al Bernikow and Irvin Reid, who are 2 long-serving directors who will be off in the next cycle, to put together a pool. Figured if we do it once, you might as well do it well. We went back and said, let's go expand it. Let's find a new slate. We have 5 directors that have been announced. I think, Manny, I can say this with confidence, we take those 5 directors. We took our time. We got people who are not being paid that want to do their job, understand the fight they're going in and have some of the finest people you could put on the Board for a company of our size, and I would compare our list to any of my competitors.

We chose people that have gone through this process before. We chose people that have done work in industries that are undergoing change. We have a lot of people who have retail experience, the industry most changing in our space. So whether it's Gail Steinel who works for Don Wood, who runs one of the best shops I know; or Michael Berman who's at Brixmor, which is obviously Blackstone, and then obviously Jimmy Taylor; and then we have Lee Wielansky who's Ken Bernstein and Acadia's Lead Director. You add to that Jamie Behar who worked at General Motors, had been on Sunstone and Forest City's Board. And we round out our group with Howard Roth who's on the Lexington's Board, but had been a long-serving member of the Ernst & Young community in the real estate business. That's where we are. Now we have a proxy battle. The vote is on June 10. And if there's anything else, I'd be happy to ask you, but I think you have to go back into the queue so we get another question.

[Operator]

Your next question comes from Mr. Steve Sakwa.

[Steve Sakwa, analyst]

I was wondering if you could just provide a little more detail on the apartments and the trends that you're seeing in terms of move-ins and move-outs with all the shelter-in-place and how you're thinking about renewal increases in the marketplace today.

[Michael DeMarco, executive]

So what happens was obviously a shock to ourselves and our tenants. So when the stay-at-home came in place, people had already notice to vacate. They don't vacate -- because they do it 60 to 90 days. We have a 60-day rule. So people -- sometimes 90 days -- give us notice and say, listen, I'm moving out in May, I'm moving out in June, I'm moving out in April. So a lot of those tenants came back and said, I'm not moving out. I didn't find a new place. I'm actually happy here. I want to extend to 6 months, to a year, some will extend it for 2 years.

So as Marshall commented, you have a buoyancy in the renewal rate. Normally, it was 55%, give or take, and it's down to 63%, 65%, so up like 5%, 8% in the first month alone. He and I both think that might go up another 10% to more like in the 70s as people sit -- let's sit and say, looking at where I am, am I happy? Do I really want to embrace moving, change? Whatever. I think we've done a good job of catering to our tenants' needs. It's kind of funny running an office business and a residential business, Steve, because the office guys, most of my colleagues are like, not much to do with no tenants. Well, in the residential business, everyone's home, and we have a lot to do.

We believe that we will be able to attract new tenants. One of the things about the construction stay is it affects you differently at what cycle you're in. If you were about to finish your building the last 10% or 15%, the stay is 100% no work because that's the close work where they're trying to prevent people from working within 6 feet. If you're pouring concrete and trying to finish it outside of a building, the state will let you actually do that in order to protect you from weather. So our competition is not going to be able to deliver any new product to us, also in the next 60, 90 days, give or take. Marshall agrees. So that's where we are, Stephen.

[Steve Sakwa, analyst]

So can you maybe just discuss, Mike, kind of what -- like what kind of renewal increases are you providing? Whether it's for June or July, I mean are you at 0 increases for tenants and kind of preserving just kind of the tenancy and kind of taking it easy? Or are you still able to push renewal increases through on multifamily?

[Michael DeMarco, executive]

It depends on the product. I mean, obviously, there are some tenants that are on the market. There were some that had a concession given to them when they first took the apartment. So when you look at that, we weren't burning off that concession. There were houses paying more the second year versus the first. So it looks like it is a rental increase. We're actually very fair-minded as to what people are going through. I actually personally deal with Marshall every week to list the people that are having issues. We go to everyone who's lost a job, who lost a roommate, so on and so forth. Some tenants are obviously getting beans where it can't affect in this environment, nor would we. Others are getting a 0 increase and others are getting a modest increase. We expect overall, because we had a very robust first quarter, that we'll probably be 1.5 to 2 for the year if we can maintain where we are.

[Steve Sakwa, analyst]

Okay. And then I guess just maybe trying to get a little bit more color from Nick, just on kind of the activity around the Waterfront and just some of the tenants. And I realize things are super slow right now in terms of new deals, but just how do you sort of think that unfolds, maybe speaking to some of the questions about suburban and flight from New York and AIG moving? And just how do you think Jersey City will be kind of looked at as an outpost to Manhattan over the next 1 to 2 years?

[Nicholas Hilton, executive]

Okay. I'll start from the beginning, the earliest part of the question, I think, from an activity perspective from the Waterfront. We absolutely had some deals go on hold. I would probably say to the tune of about 150,000 square feet or so, maybe close to 200,000 square feet of deals go on hold. Now it's -- the reason they go on hold, none of them say they want to -- they're not thinking about real estate. It's really more of either they don't have a lease expiration happening immediately that they're trying to react to, and they want to understand what density they're going to be dealing with moving forward, what construction standards are going to be looking like. So they just want to see what the world looks like on the other side of this as best they can. With that said, as I mentioned in my remarks, we had about -- we still have about 200,000 square feet in negotiations today.

Broader out into the suburbs, we are seeing inquiries come in and they're -- as I mentioned also in my remarks, we're kind of in 2 sections. The first is existing tenants looking to do short-term expansions or short-term renewals should they have a lease event coming right away. And then the second group is really sort of a medium-term, 3- to 5-year solution, maybe 20,000, 30,000 square feet presence in Manhattan, looking to do something that's easy to get into, flexible and just following that sort of fact pattern.

And then as it relates to the Waterfront over the long term, I would say that the benefit that we have here is twofold. One, we have a great product, great diversity in the product. We can cater to a lot of different tenant sizes. You can drive here. You can take mass transit here. So I think as you look at it, how you get here and what you do when you can get here is going to continue to be good selling points. So I do see us in a good position to capitalize on activity moving forward.

[Operator]

Your next question comes from Jamie Feldman.

[James Feldman, analyst]

I was hoping you could go back to your comments on converting some of the corporate residential tenants and trying to extend lease durations. Can you just provide more color on exactly how that might play out?

[Michael DeMarco, executive]

Sure. So what's happened is that it's almost like you've seen the mindset of various customers go through as you give them a curate of choices. So we go back to people and say, listen, if you want to extend, here's the options we'll give you. And people -- some people are going and saying, listen, I really like it here, I don't think to move. I'll take the renewal increase for the next 2 years, but I want to lock in the next 24, 26 months. Others coming and saying, I want to commit, but I want to commit for the end of the year. I want to get to January for my bonuses, so I want 7, 8 months to basically get me to the end. And the hodgepodge in between, people that are moving around for apartments and saying, I want to move to a better unit. I want to upgrade because they feel like they can basically lock in.

The corporate housing providers we had were basically people who added corporate housing for executives who moved into the area that service to New York. It was basically a long-term hotel business. It was indistinguishable from our regular rentals because most of them would say 3, 6 months, 9 months, whatever you're assigned to. You worked at Goldman, you worked at Merrill, Morgan Stanley, and they got you in an apartment, a 2-bedroom or a 3-bedroom or a 1-bedroom or a studio in Jersey City or in Boston or in D.C. We had them throughout.

We've been winning it down over the last several months because the Airbnb pushback has been nationwide, was effectively kind of fall under if they don't have really long-term corporate stays. We're going to re-rent those apartments. We're about to do them now. We might be getting the furniture back. And Marshall and I have been talking about renting units out to students, which is a part of our business cycle. It will be fully furnished, but we will be able to get these units back. They generally tend to be in some of our better locations because the corporate guys were good at picking right buildings and right locations. So it's just something we'll deal with over the next few months.

[James Feldman, analyst]

Okay. And I guess, how do you think about the NOI impact? Is there going to be a dip for a while before you can re-lease those spaces? Or -- and then on rent also, can you just give us...

[Michael DeMarco, executive]

It's a small hit because they won't be paying us, and then we'll be able to merge our way into that, hopefully getting better rents than they were paying us to begin with, then we'll wind up in like 3 to 6 months. This probably won't be done, maybe even less. This is the leasing season. Like I said earlier, like in Jersey City, there were at least 2 buildings I knew that were about to be delivered, that we would have faced competition from that. It will be postponed for the next 90 days because even if the governor lifted the stay today, by the time they got the crews back and did the punch list and get the COs, you have a competitive advantage. And when they use that time, they basically rent out our product.

[James Feldman, analyst]

Okay. That's helpful. And then when you think about the asset sales, I know you guys kind of gave updated timing. Is there a deadline for when some of these have to get done before either side -- or before the buyers can walk away?

[Michael DeMarco, executive]

No. But we have due diligence contract terms, and we intend to enforce them. But we're good on Onyx. I think we're good on the Hoboken transaction. The rest of them are ones we want to put on the contract. We were talking yesterday about the Short Hills portfolio, about some activity we've been getting that we think we can transact on. I can't understate, and for the purpose of this call, how much better it is if you had wanted to do this a year earlier. You hire the brokers, put the resources, did the photos, the books. Can you imagine trying to do a memorandum or getting a sales process done outside of your office, Jamie, for a major portfolio? It would be nerve-racking. We already have it done, and then we push the button and we can move on every asset that we have.

[James Feldman, analyst]

Okay. And then I guess just going back to your answer on a prior question. You mentioned 20,000 to 30,000 square foot short- and medium-term solutions in the suburbs that tenants are looking for. Can you just talk more about the magnitude of those types of deals? And then when you say short and medium term, how long a duration? And are there specific examples you can provide of companies that are actually looking to do that and then how that commits with their urban footprint?

[Michael DeMarco, executive]

You're getting people that come and say to you, what do you have in Short Hills? What do you have in Metropark? What do you have in Monmouth? And what do you have in Parsippany, which is obviously Morris County? And they look for corporate users that are coming out of New York City for a division or segment that says, hey, let's see if we can move this out. And sometimes it's going to be driven by the business unit head. We said, hey, my people already live in New Jersey. Going into New York isn't going to work for us short term. Maybe we can take a group out. And it's usually 3- to 7-year deals, probably the sweet spot is 3 to 5. You might get some people to do 7 depending if they really like the space, but it's in that range.

[James Feldman, analyst]

Sorry, do you actually have tenants looking? Or these are more intermediaries?

[Michael DeMarco, executive]

No. They're brokers on behalf of companies and mostly blue chips. It's like real names that are coming out and saying, hey, I want to look at what can I put in. For example, your market, Jamie, is Short Hills. People that live in that area, they were commuting to Manhattan. Someone sit there and say, similar to people who have moved to downtown Summit, whether it was McKinsey or other groups, do I take 30,000 square feet? And they go to 150 JFK or 51 JFK or 101 or 103, the buildings we own. It's a perfectly satisfied market, and people could reverse commute out of New York City. And the train will be less crowded, and we could drive and so on and so forth. It's just going to be a short-term solution. A lot of people are going to be thinking about where they want to spend the next 6 months, a year, and commuting is going to be an issue for people.

[James Feldman, analyst]

Yes. Okay. And then finally, how do you guys -- how are you feeling about the distribution, your coverage and the outlook?

[Michael DeMarco, executive]

I'm fine. I mean we're fine for this quarter and in the foreseeable future. One of the benefits is, since we haven't sold anything, we don't have the dilution in income. And as we get closer to the delivery of multifamily, of course, it's over. So we're already starting to deliver in more the number of year. We'll probably deliver the rest of the stuff. I mean Jamie, can we have a joke for a moment? How quickly do you think today, today, if we had the Short Hills asset opened and we said to people in New York City, hey, do you want to live in Short Hills and go to the Millburn school district? If you can move out of Manhattan, how quickly do you think we could fill that apartment up?

[James Feldman, analyst]

Yes. Pretty fast. Yes.

[Michael DeMarco, executive]

Very fast, right? Very fast. That's the type of things we're looking forward to.

[Operator]

Your next question comes from John Guinee.

[John Guinee, analyst]

A couple of softballs for you. Marshall, I guess, Marshall, I don't know, maybe, David, what do you think it takes in the hotel space for you guys to get to breakeven just covering operating costs, forget debt service, do you have to get to 20%, 30%, 40%, 50% run rate on occupancy? What's it cost you to get to break -- or what's the occupancy and the number to get to breakeven?

And then Marshall, really big picture, if you think about the dozens of multifamily submarkets in the New York metro area, given what's happened recently, where would you want to own dirt today? Where do you think there's going to be real strength versus real weakness in a couple of key submarkets?

[Michael DeMarco, executive]

I'm going to do the first one, and Marshall will obviously do the second one. Regarding hotels, it really depends on the operating expense matrix and where you are as a margin. So Residence Inn has some of the best margins, right? You don't provide food and beverage, tech is relatively efficient, small number of rooms, relatively small front office staff. We can operate that at 25%, you're breakeven. So at 58%, we're actually making some money, depending upon, obviously, where your ADR is, right? If ADR collapses, it affects that.

When you move to the EnVue, which is supposed to have a decent food and beverage, but was mostly towards the travel and business, you're probably going to be up to be in a 55%, 60% range, right? The Hyatt could operate at the same, but make money depending upon how much sales and convention business you have. The Hyatt was very big for weddings, very big for sales meetings, which are all things that maybe people won't be doing or may not want to do in the next 3 to 6 months. So of that matrix, I would say normally, 55% to 60% for your full-service hotels, 25% to 30% for the limited service.

And I'll turn it over to Marshall to finish your questions.

[Marshall Tycher, executive]

Yes, John, I think it's too early to tell which markets are going to have dramatic moves up or down in land value. Historically, the last 5 to 10 years, all the submarkets that were centric to mass transit really had a big acceleration in land value. There's a big debate, I guess, now whether people are going to want to jump on trains to get to the city or we're going to have this reverse commute and exodus. But all those same submarkets that had mass transit proximity have all the lifestyle and entertainment, which has always, always been a big draw for young professionals renting as well. So that might offset the -- maybe the devaluation of mass transit nodes. So I'm not really sure yet. Land value moves as a commodity pretty quickly. So it will also depend on demand, how many builders are out looking for sites or who or where there's financing constriction or not.

[Operator]

Your next question comes from Daniel Ismail.

[Daniel Ismail, analyst]

Just wanted to see if you could provide a bit more detail on the 111 River Street sale. It looks like pretty healthy pricing, that $430 a square foot keeps popping up around that market. And it looks like pretty good read-through for the remaining portfolio. So just curious if you can start shedding more color there.

[Michael DeMarco, executive]

Yes. So I wanted to market the suburbs we did, and we're working through that. I also felt that I wanted to be able to transact, if could, on some Waterfront assets to lighten our load. Looked at assets that weren't -- there were good assets but weren't core to the strategy, which basically has the multifamily as the core. And then Harborside because of the zoning and the retail components basically builds into it. So we marketed last year, Danny, to be very candid, 101 Hudson and 111 River. 111 River is 1 building of a 3-building complex, 2 other buildings owned by a competitor of ours who we deal with every day. We went to them and said, listen, we're going to market this. We have a couple of people who want it, but do you want to buy this? He wanted to buy it, right?

It's a tight market. It's where [ dread ] is. It's where Walmart has expanded. It's where Ernst & Young had moved into a couple of years ago, had some publishing companies, and it's actually a solid tube market, right, gets all the attributes of basically being in a dense area. The price is deceivingly -- actually deceivingly higher than you think because that's a ground lease. That's a building that we have a long-term lease with the Port Authority of New York and New Jersey, relatively attractive lease, but ground lease.

The building then sits above it. We have John Wiley in for at $37 escalated for a long-term lease, and we've been renting at $50 for the remainder of the building. So a healthy remarket spread. He has long-term capital. He wanted to buy it. He didn't want to catch a deal where Wiley goes bankrupt. There's some other credit happen. So we signed a deal and he's waiting. We have to go through to get the Port Authority assumption done. We have a loan on it that's going to be assumed. And that should close, hopefully, barring no other economic occurrence, in sometime in August, we're hoping.

Now 101 Hudson, just to give you more information, we were getting a price of around $400 a square foot, and that was essentially a straight deal. There's no ground lease. Big building, 80% occupied. We thought we could get a little higher than that. It came out to about $500 million in total, and we were working through that. Bids kind of fell away as the market slipped, but we think we could go back to that as the market rebounds. People look at that attractively. And we've been backed up. There's obviously been a sale. LeFrak sold a building at those levels. They sold an empty building by SJP Properties to Joe Sitt and company for $385 a foot -- sorry, $285 a foot, excuse me. So there's been a decent amount of activity in this marketplace, and the rent levels have been good so far.

[Daniel Ismail, analyst]

Okay. That's helpful. And then just to touch on the Grow New Jersey program, it looks like state and local budgets across the nation are under strain because of the pandemic-related quarantines. Any thoughts or any updates on that program and discussions on restarting it? And how do you guys see that playing out?

[Michael DeMarco, executive]

I have conversations with the Governor's staff, the Governor, the Speaker of the Senate on a regular basis, and they always come back to the same thing, right? It's on the bill. That bill will get passed as soon as Murphy and the Senate President agreed on the cap level. Murphy's held out -- Governor Murphy has held out for the caps. The extent of presidential caps are not appropriate in this environment. It's going to get addressed in this economic budget session because they're going to be wanting to grow the company -- grow the state, excuse me, the jobs. One thing we didn't mention, we have a deal poking around for a couple of hundred thousand square feet from a tech tenant that we assume would have to take a Grow New Jersey incentives, right, but that company has done a lot of due diligence on our buildings. We're expecting RFP in soon, but we look favorably at this environment going forward. So...

Anything else? Operator any more questions?

[Operator]

No more questions so far. You may continue, sir.

[Michael DeMarco, executive]

Thank you. I wish everyone to stay happy, safe, healthy. Look forward to a more normalized environment in the upcoming months. And I thank you all for the time and attention this morning. Greatly appreciated by all of us. Be well.

[Operator]

This concludes today's conference. You may now all disconnect.